Best Ever Toys just paid its annual dividend of $1.78 per share. The required return is10.6 percent and the dividend growth rate is 1.23 percent. What is the expected value of this stock five years from now?

Question

Quizplus · Accepted Answer

The expected value of the stock can be calculated using the Gordon Growth Model (Dividend Discount Model). First, calculate the expected dividend in five years using the formula: D5 = D0 * (1 + g)^5. Then, use the formula for the stock price: P5 = D5 / (r - g). Plug in the values: D0 = $1.78, g = 0.0123, r = 0.106. Calculate D5 and then P5 to find the expected stock price.

Best Ever Toys Just Paid Its Annual Dividend of $1